PUJA BHAGNANI, MUMBAI V. ACIT CIR 11(1), MUMBAI

ITA 1056/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4659 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-09-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 16-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Keywords: Business income; Charitable institution; Audit objection; Question of law; Wrong claim; Difference of opinion; Reason to believe; Reassessment proceedings
• Section: 143(3); 80G; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1056/MUM/2009 (ASSESSMENT YEAR: 2000-01) MRS. PUJA BHAGNANI ACIT, CIRCLE - 11(1) 'POOJA HOUSE' CTS NO. 892-893 MUMBAI OPP. J.W. MARRIOTT HOTEL, JUHU TARA VS. ROAD, JUHU, MUMBAI 400040 PAN - AABPB 0318 B APPELLANT RESPONDENT APPELLANT BY: SHRI SUNIL NAHTA RESPONDENT BY: SHRI HARI GOVIND SINGH O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XI, MUMBAI DATED 05.11.2008. 2. ASSESSEE HAS RAISED THE FOLLOWING TWO GROUNDS: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) ERRED I N CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN RE-OPENING T HE ASSESSMENT U/S. 147 AND THE REASONS PROVIDED FOR DOING SO IS W RONG AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE , THE PROVISIONS OF INCOME TAX ACT, 1961 AND RULES MADE THERE UNDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LOWER AUTHORITIES ERRED IN NOT INCLUDING INTEREST I NCOME OF RS.21,90,373/- AND INTEREST ON CDR OF RS.1,40,206/- FOR ALLOWABILITY OF CLAIM FOR DEDUCTION U/S. 80IA OF TH E INCOME TAX ACT, 1961 AND THE REASONS PROVIDED FOR DOING SO IS WRONG AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE PRO VISIONS OF INCOME TAX ACT, 1961 AND RULES MADE THERE UNDER. 3. AS SEEN FROM THE ABOVE THE ASSESSEE IS CONTESTING R EOPENING OF ASSESSMENT UNDER SECTION 147 AND ALSO ON MERITS IN GROUND NO. 2. AS SEEN FROM FORM 35 FILED BY THE ASSESSEE BEFORE THE CIT(A ), THE ASSESSEE HAS NOT CONTESTED THE ISSUE ON MERITS AT ALL. SHE CONTESTED ONLY REOPENING OF ITA NO. 1056/MUM/2009 MRS. PUJA BHAGNANI 2 ASSESSMENT UNDER SECTION 147. GROUND RAISED BEFORE THE CIT(A) WAS AS UNDER:- 1) LD. AO IS NOT JUSTIFIED IN MAKING ASSESSMENT U/ S. 143(3) R.W.S. 147 OF THE I.T. ACT AND THE REASON GIVEN IN THE ASSESSM ENT ORDER FOR MAKING ASSESSMENT ARE FAR FROM BEING CORRECT. APPEL LANT SUBMIT THAT THE OPINION OF THE INTERNAL AUDIT PARTY OF THE INCOME TAX DEPARTMENT ON A POINT OF LAW CANNOT BE REGARDED AS INFORMATION WITHIN THE MEANING THE SECTION 147 OF THE I.T. ACT, AND THE REASONS FOR REOPENING OF THE ASSESSMENT IS NOT BY ANY INDEP ENDENT ENQUIRY AS SUCH PRAYS THAT THE SAID ASSESSMENT BEING BAD IN LAW BE SET ASIDE. 4. THE CIT(A), VIDE HIS ORDER DATED 05.11.2008 HAS CON SIDERED THE ISSUE ON JURISDICTION FOR REOPENING THE ASSESSNENT CONTES TED IN THE GROUND ALONE. SINCE THE ISSUE OF MERITS DOES NOT ARISE OUT OF THE ORDER OF THE CIT(A) AND AS THERE WAS NO PRAYER FOR CONSIDERING THE ADDITIONAL GROUND AT ALL AND FURTHER SINCE THE ISSUE OF MERIT IS COVERED BY THE PRINCIPL ES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA 317 ITR 218, THERE IS NO NEED TO CONSIDER THE ISSUE IN GROUND NO. 2 AT ALL. ACCORDINGLY THE SAME IS REJECTED. 5. THE ISSUE IN GROUND NO. 1 IS WITH REFERENCE TO REOP ENING OF THE ASSESSMENT. THE A.O. REOPENED THE ASSESSMENT UNDER SECTION 147 BY ISSUING NOTICE UNDER SECTION 148 BY RECORDING THE F OLLOWING: - THE ASSESSEE HAS FILED HER RETURN OF INCOME FOR A. Y. 2000-01 ON DUE DATE I.E. 30.10.2000 DECLARING THE TOTAL INCOME AT RS.1,11,02,470/-. ALTHOUGH THE INTIMATION U/S 143(1) IS NOT AVAILABLE ON RECORD, SINCE THE ASSESSEE HAS FILED RETURN IN TIME, IT IS PRESUMED T HAT THE SAID RETURN WAS DULY ACCEPTED. ON PERUSAL OF THE RECORDS, IT IS SEE N THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IA AT RS.1,43,71,087/- @ 1 00% OF THE PROFITS OF HERE PROPRIETARY CONCERN M/S. POOJA CASSETTES, WITH OUT DEDUCTING THE INCOME FROM OTHER SOURCES I.E. INTEREST ON LOAN AND INTEREST ON CDR AGGREGATING TO ` 23.30,579/-, WHICH APPEARS TO HAVE BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT. I, HAVE THEREFORE, REASON TO BELIEVE THAT DEDUCTION U/S. 80IA HAS BEEN GRANTED EXCESSIVELY BY RS.23,30, 579/- AND THEREBY INCOME TO THE TUNE OF RS.23,30,579/- HAS ESCAPED AS SESSMENT WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT, 1961. 6. IT WAS THE CONTENTION OF THE ASSESSEE THAT THIS INF ORMATION HAS BEEN POINTED OUT BY THE INTERNAL AUDIT PARTY OF THE INCO ME TAX DEPARTMENT AND THE SAME CANNOT BE CONSIDERED AS INFORMATION FOR TH E PURPOSE OF SECTION 147 ITA NO. 1056/MUM/2009 MRS. PUJA BHAGNANI 3 AND HENCE, REOPENING OF THE ASSESSMENT WAS BAD IN L AW. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HAS RE CORDED THE FOLLOWING FINDING AND REJECTED THE GROUND : - 5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIALS ON RECORD. FOR INITIATION OF PROCEEDINGS U/S. 147 THE CONDITIONS ATTENDANT ARE BASICALLY (A) THE A.O. HAS TO FORM REASON TO BE LIEVE (B) WITH REGARD TO ESCAPEMENT OF INCOME. EXPLANATION (2) THERE UNDER M AKES EXCESS CLAIM OF LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETU RN OR WHERE ASSESSMENT HAS BEEN MADE WITH EXCESSIVE RELIEF GRANTED TO CONS TITUTE CAUSE OF ACTION FOR INITIATING ACTION U/S. 147. IN THE INSTANT CASE , THE APPELLANTS ONLY CONTENTION IS THAT SINCE THE OBJECTION WAS RAISED B Y THE INTERNAL AUDIT PARTY, THE SAME CANNOT CONSTITUTE GROUND FOR SUCH I NITIATION. THIS, TO MY MIND, IS A SWEEPING GENERALIZATION. THE CONDITIONS LAID DOWN IN THE ACT NEED TO BE FULFILLED FOR INITIATING PROCEEDINGS UND ER THE SAID SECTION. THERE IS NO BAR ON OBJECTION RAISED BY THE INTERNAL AUDIT FOR SUCH PURPOSE. THERE ARE, SEVERAL CASES LAWS WHICH HAVE E XPLAINED INITIATION OF PROCEEDINGS U/S. 147 FOLLOWING AUDIT OBJECTION. IN FACT, IN THE CASE OF CIT VS. P.V.S. BEEDIES PVT. LTD. [237 ITR 13(SC)], THE APEX COURT HAD HELD THAT PROCEEDINGS U/S. 147 CAN BE INITIATED UND ER CERTAIN FACTS AND CIRCUMSTANCES ON THE BASIS OF AUDIT OBJECTION. IT, THEREFORE, CANNOT BE SAID THAT AUDIT OBJECTION CANNOT BE A BASIS FOR INI TIATION OF SUCH PROCEEDINGS. IN THE INSTANT CASE, THE A.O. HAS STAT ED THE FACTS AND HAS FORMED REASON TO BELIEVE ON SUCH FACTS. THE ASSESSE E IS SILENT ON SUCH FACTS. IN THE APPELLANTS AVERMENTS, THERE IS NOTHING EXCE PT STATING THAT AUDIT OBJECTION COULD NOT BE A BASIS FOR INITIATING SUCH PROCEEDINGS. THE APPELLANT HAS NOT ASSAILED THE FACTS BROUGHT ON REC ORD BY THE A.O. THE A.O. HAS STATED THAT UNDER THE SAID FACTS AND CIRCU MSTANCES HE COULD FORM REASON TO BELIEVE WITH REGARD TO ESCAPEMENT OF INCOME. THE APPELLANT IS SILENT ON THIS CONTENTION OF THE A.O. WHICH IS SO VITAL IN COMING TO A CONCLUSION ON WHETHER OR NOT ITS A FIT CASE FOR ACTION U/S. 147. THAT BEING THE CASE, I AM NOT PERSUADED BY THE APPELLANTS CONTENTIONS IN THIS REGARD. THE APPEAL, THEREFORE, DESERVES TO BE REJECTED. 7. THE LEARNED COUNSEL SUBMITTED THAT THE A.O. HAS NOT APPLIED HIS MIND AND THE AUDIT OBJECTIONS CANNOT BE TREATED AS INFOR MATION FOR THE PURPOSE OF REOPENING OF THE ASSESSMENT. HE RELIED ON THE JUDGM ENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PURITY TECHTEXTILE S (P) LTD. VS. ACIT 230 CTR (BOM) 157 FOR THE PROPOSITION THAT IN THE ABSEN CE OF NEW MATERIAL THE A.O. HAD NO MATERIAL TO FORM A BELIEF THAT INCOME H AD ESCAPED ASSESSMENT AND THE A.O. MERELY RELIED ON AN AUDIT OBJECTION AN D ACCORDINGLY REOPENING WAS NOT PERMISSIBLE. FURTHER HE ALSO RELIED ON THE JUDGEMENT OF CIT VS. SFIL ITA NO. 1056/MUM/2009 MRS. PUJA BHAGNANI 4 STOCK BROKING LTD. 325 ITR 284(DEL) FOR THE PROPOSI TION THAT THE ASSESSING OFFICERS ISSUING NOTICE UNDER SECTION 148 ON THE B ASIS OF INFORMATION GIVEN BY THE DY. DIRECTOR OF INCOME TAX THAT THE ASSESSEE WAS BENEFICIARY OF BOGUS CLAIM AND THAT THE A.O. WAS NOT APPLYING HIS MIND T O INDEPENDENTLY ARRIVE AT THE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT THE R EOPENING WAS BAD IN LAW. ACCORDINGLY IT WAS SUBMITTED THAT THE REOPENIN G ON THE BASIS OF AUDIT OBJECTION WAS BAD IN LAW. 8. HOWEVER, THE LEARNED COUNSEL FAIRLY ADMITTED THAT T HERE WAS NO ASSESSMENT UNDER SECTION 143(3) IN THIS CASE AND TH E A.O. HAS OTHERWISE POWERS TO REOPEN THE ASSESSMENT UNDER SECTION 147. THE ONLY ISSUE IS WITH REFERENCE TO THE BASIS FOR ARRIVING AT THE BELIEF T HAT INCOME HAS ESCAPED ASSESSMENT. 9. THE LEARNED COUNSEL FOR THE ASSESSEE IN THE COURSE OF ARGUMENT RELIED UPON THE DECISION OF THE HON'BLE ALLAHABAD HIGH COU RT IN THE CASE OF GULATI PHARMACEUTICALS PVT. LTD. VS. ITO 187 ITR 582 FOLL OWING THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CAS E OF INDIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT 119 ITR 996 WHEREIN THE H ON'BLE SUPREME COURT HAS CONSIDERED THAT OPINION OF AN INTERNAL AUDIT PA RTY OF THE INCOME TAX DEPARTMENT ON A POINT OF LAW CANNOT BE REGARDED AS INFORMATION WITHIN THE MEANING OF SECTION 147(B) FOR THE PURPOSE OF REOPEN ING OF ASSESSMENT. RELYING ON THE ABOVE IT WAS THE SUBMISSION OF THE L EARNED COUNSEL THAT THE A.O. HAS NO INDEPENDENT INFORMATION TO ARRIVE AT TH E BELIEF THAT INCOME HAS ESCAPED ASSESSMENT. 10. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDER OF T HE CIT(A) AND DISTINGUISHED THE CASE LAWS RELIED UPON BY THE LEAR NED COUNSEL. IT WAS HIS SUBMISSION THAT THE A.O. HAS INDEPENDENTLY CAME TO THE BELIEF AS RECORDED IN THE NOTING BEFORE ISSUANCE OF THE NOTICE UNDER S ECTION 148 AND THE ASSESSING OFFICERS RECORDING IS THE BASIS FOR REOP ENING THE ASSESSMENT. IT IS FURTHER SUBMITTED THAT THE AUDIT PARTY HAS NOT SUPP ORTED ANY OF THE LEGAL ISSUE TO THE NOTICE OF THE A.O. BUT MAKING WRONG CL AIM OR EXCESS CLAIM IS COVERED BY SECTION 147 EXPLANATION 2(B) AND THE AO HAS JURISDICTION TO REOPEN. ITA NO. 1056/MUM/2009 MRS. PUJA BHAGNANI 5 11. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE RECO RDING OF REASONS GIVEN BY THE A.O., WHICH IS EXTRACTED IN THE ASSESS MENT ORDER ITSELF, THE A.O. HAS FORMED AN INDEPENDENT BELIEF THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IA IN THE PROPRIETARY CONCERN ON IN TEREST OF LOANS AND INTEREST OF CDS TOTALLING TO AN AMOUNT OF ` 23,30,579/-. BEFORE ADVERTING TO THE LEGAL ISSUES, IT IS NECESSARY TO STATE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF PLASTIC AUDIO AND VIDEO CASSETT ES COMPONENTS AND HAS VARIOUS PROPRIETARY CONCERNS IN THE NAMES OF M/S. P OOJA CASSETTES, M/S POOJA INDUSTRIES, M/S, P.V. INDUSTRIES, M/S POOJA I NVESTMENTS, M/S POOJA EXPORTS. THERE WAS SHARE OF PROFIT FROM POOJA PLAST IC INDUSTRIES WHERE THE ASSESSEE IS A PARTNER WHEREAS THERE ARE BUSINESS IN COMES FROM OTHER FIVE CONCERNS STATED ABOVE. THE ASSESSEE, IN THE COMPUTA TION OF INCOME CLAIMED DEDUCTION UNDER SECTION 80IA ON 100% PROFIT OF THE PROPRIETARY CONCERN POOJA CASSETTES AT ` 1,13,09,038/- AND 25% UNDER SECTION 80IA ON P.V. INDUSTRIES & M/S. PUJA INDUSTRIES. AS SEEN FROM THE P & L ACCOUNT OF THE M/S POOJA CASSETTES, THERE WERE GROSS SALES TO THE EXTENT OF ` 4.28 CRORES AND A GROSS PROFIT OF ` 1,03,28,882/-. TO THIS THE ASSESSEE ADDED INTEREST ON LOANS AT ` 31,90,373/- AND INTEREST OF CDR AT ` 1,40,287/-. BY INCLUSION OF THESE TWO AMOUNTS IN THE P & L ACCOUNT OF M/S POOJA CASSE TTES THE NET PROFIT WAS ARRIVED AT ` 1,13,09,038/- WHICH WAS CLAIMED AS DEDUCTION. AS SE EN FROM THE P & L ACCOUNT AND THE BALANCE SHEET ENCLOSED THE AS SESSEE HAS ADVANCED AN AMOUNT OF ` 1.25 CRORES AS LOAN TO VARIOUS PARTIES AND EARNED I NTEREST INCOME. BY INCLUDING THESE AMOUNTS IN THE P & L ACC OUNT OF M/S. POOJA CASSETTES, ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IA AT 100% OF THESE AMOUNTS AND THIS RETURN WAS ACCEPTED UNDER SECTION 143(1) WITHOUT ANY ADJUSTMENT AND THIS WAS THE REASON FOR THE A.O. TO COME TO THE BELIEF THAT ASSESSEE HAS WRONGLY CLAIMED DEDUCTION AT 100% ON T HE INTEREST ON LOANS AND INTEREST OF CDRS AGGREGATING TO ` 23,30,579/-. AS FAR AS MERITS ARE CONCERNED, THE INTEREST ON LOANS CONSTITUTE A DIFFE RENT BUSINESS AND NOT CONNECTED WITH THE MANUFACTURING OR PRODUCTION OF C ASSETTES ON WHICH 80IA CLAIM WAS MADE. ACCORDINGLY THIS AMOUNT PRIMA FACIE IS NOT ELIGIBLE FOR DEDUCTION AS IT HAS NO CONNECTION WITH THE ACTIVITY OF MANUFACTURING OR PROCESSING. WITH REFERENCE TO THE INTEREST ON FIXED DEPOSIT, OBVIOUSLY IT SEEM ITA NO. 1056/MUM/2009 MRS. PUJA BHAGNANI 6 TO BE A SURPLUS AMOUNT WHICH HAS NO NEXUS WITH THAT OF THE MANUFACTURING OR PRODUCTION AND HAS NO CONNECTION EVEN REMOTELY, LIKE A DEPOSIT FOR MARGIN MONEY FOR OVER DRAFT FACILITY. THAT MAY BE T HE REASON WHY THE ASSESSEE CHOOSE NOT TO CONTEST THE ISSUE ON MERITS BEFORE THE CIT(A) BUT RAISED THE GROUND BEFORE THE ITAT. 12. NOW THE ISSUE BOILS DOWN TO WHETHER THE A.O. HAS RE ASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE MAIN CONTEN TION OF THE ASSESSEE WAS THAT INTERNAL AUDIT PARTYS OPINION CANNOT BE C ONSIDERED AS INFORMATION WITHIN THE MEANING OF SECTION 147. THE ASSESSEE HAS RELIED MOSTLY ON THE CASE LAWS PERTAINING TO THE PRE-AMENDED PROVISIONS OF SECTION 147 IN WHICH INFORMATION WAS CONSIDERED. THE HON'BLE SUPREME C OURT IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIETY VS. CIT 119 IT R 996 HAS CONSIDERED THE PROVISION THEN EXISTING AND HELD AS UNDER: - THE OPINION OF AN INTERNAL AUDIT PARTY OF THE INCO ME-TAX DEPARTMENT ON A POINT OF LAW CANNOT BE REGARDED AS 'INFORMATION' WI THIN THE MEANING OF S. 147(B) OF THE I.T. ACT, 1961, FOR THE PURPOSE OF RE OPENING AN ASSESSMENT. BUT ALTHOUGH AN AUDIT PARTY DOES NOT POSSESS THE PO WER TO PRONOUNCE ON THE LAW, IT NEVERTHELESS MAY DRAW THE ATTENTION OF THE ITO TO IT. LAW IS ONE THING, AND ITS COMMUNICATION ANOTHER. IF THE DI STINCTION BETWEEN THE SOURCE OF THE LAW AND THE COMMUNICATION OF THE LAW IS CAREFULLY MAINTAINED, THE CONFUSION WHICH OFTEN RESULTS IN AP PLYING S. 147(B) MAY BE AVOIDED. WHILE THE LAW MAY BE ENACTED OR LAID DO WN ONLY BY A PERSON OR BODY WITH AUTHORITY IN THAT BEHALF, THE KNOWLEDG E OR AWARENESS OF THE LAW MAY BE COMMUNICATED BY ANYONE. NO AUTHORITY IS REQUIRED FOR THE PURPOSE. THAT PART ALONE OF THE NOTE OF AN AUDIT PA RTY WHICH MENTIONS THE LAW WHICH ESCAPED THE NOTICE OF THE ITO CONSTIT UTES 'INFORMATION WITHIN THE MEANING OF S. 147(B); THE PART WHICH EMB ODIES THE OPINION OF THE AUDIT PARTY IN REGARD TO THE APPLICATION OR INT ERPRETATION OF THE LAW CANNOT BE TAKEN INTO ACCOUNT BY THE ITO. IN EVERY C ASE, THE ITO MUST DETERMINE FOR HIMSELF WHAT IS THE EFFECT AND CONSEQ UENCE OF THE LAW MENTIONED IN THE AUDIT NOTE AND WHETHER IN CONSEQUE NCE OF THE LAW WHICH HAS NOW COME TO HIS NOTICE HE CAN REASONABLY BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE BASIS OF HIS BELIEF MUS T BE THE LAW OF WHICH HE HAS NOW BECOME AWARE. THE OPINION RENDERED BY THE AUDIT PARTY IN REGARD TO THE LAW CANNOT, FOR THE PURPOSE OF SUCH BELIEF, ADD TO OR COLOUR THE SIGNIFICANCE OF SUCH LAW. THE TRUE EV ALUATION OF THE LAW IN ITS BEARING ON THE ASSESSMENT MUST BE MADE DIRECTLY AND SOLELY BY THE ITO. IN EVERY CASE, A DECLARATION OR EXPOSITION TO BE LA W, MUST BE A CREATION BY A FORMAL SOURCE, EITHER LEGISLATIVE OR JUDICIAL AUTHORITY. A STATEMENT BY A PERSON OR BODY NOT COMPETENT TO CREATE OR DEFINE THE LAW CANNOT BE ITA NO. 1056/MUM/2009 MRS. PUJA BHAGNANI 7 REGARDED AS LAW. THE SUGGESTED INTERPRETATION OF EN ACTED LEGISLATION AND THE ELABORATION OF LEGAL PRINCIPLES IN TEXT BOOKS A ND JOURNALS DO NOT ENJOY THE STATUS OF LAW. THEY ARE MERELY OPINIONS AND, AT BEST, EVIDENCE IN REGARD TO THE STATE OF LAW AND IN THEMSELVES POSSES S NO BINDING EFFECT AS LAW. THE FORENSIC SUBMISSIONS OF PROFESSIONAL LAWYE RS AND THE SEMINAL ACTIVITIES OF LEGAL ACADEMICS ENJOY NO HIGHER STATU S. THE ASSESSEE SOCIETY REGISTERED UNDER THE COMPANIES ACT, A PROFESSIONAL ASSOCIATION OF NEWSPAPERS ESTABLISHED WITH THE PRIN CIPAL OBJECT OF PROMOTING THE WELFARE AND INTEREST OF ALL NEWSPAPER S, OWNED A BUILDING IN WHICH A CONFERENCE HALL AND ROOMS WERE LET OUT O N RENT TO ITS MEMBERS AS WELL AS TO OUTSIDERS AND ALSO PROVIDED CERTAIN S ERVICES TO ITS MEMBERS. ALL ALONG THE ASSESSEE'S INCOME FROM THAT SOURCE WAS ASSESSED TO TAX AS INCOME FROM BUSINESS AND IT WAS SO ASSESSED FOR THE ASSESSMENT YEARS 1960-61 TO 1963-64 ALSO. IN THE CO URSE OF AUDIT, AN INTERNAL AUDIT PARTY EXPRESSED THE VIEW THAT THE MO NEY REALISED BY THE ASSESSEE ON ACCOUNT OF THE OCCUPATION OF ITS CONFER ENCE HALL AND ROOMS SHOULD HAVE BEEN ASSESSED UNDER THE HEAD 'INCOME FR OM PROPERTY' AND NOT AS BUSINESS INCOME. TREATING THE CONTENTS OF TH E AUDIT REPORT AS 'INFORMATION', THE ITO INITIATED REASSESSMENT PROCE EDINGS FOR THOSE FOUR YEARS UNDER S. 147(B). ON APPEAL, THE AAC HELD THAT IT COULD NOT IN LAW BE SAID THAT THE ITO HAD ANY 'INFORMATION' IN HIS P OSSESSION ENABLING HIM TO TAKE ACTION UNDER S. 147(B), BUT, ON FURTHER APPEAL, THE TRIBUNAL, AFTER NOTICING A DIFFERENCE OF OPINION BETWEEN THE HIGH COURTS, FOLLOWED THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF SMT. CHAND KANWARJI [1975] 84 ITR 584, AND HELD THAT AN INTERNAL AUDIT REPORT COULD BE REGARDED AS 'INFORMATION'. ON A DIRECT REFERENCE TO THE SUPREME COURT: _ HELD, _ THAT THE OPINION OF THE AUDIT PARTY ON A POINT OF LAW COULD NOT BE REGARDED AS 'INFORMATION' ENABLING THE ITO TO INITI ATE REASSESSMENT PROCEEDINGS UNDER S. 147(B). THE ITO HAD, WHEN HE M ADE THE ORIGINAL ASSESSMENT, CONSIDERED THE PROVISIONS OF SS. 9 AND 10 OF THE INDIAN I.T. ACT, 1922. ANY DIFFERENT VIEW TAKEN BY HIM AFTERWAR DS ON THE APPLICATION OF THOSE PROVISIONS WOULD AMOUNT TO A CHANGE OF OPI NION ON MATERIAL ALREADY CONSIDERED BY HIM. THE PROPOSITION IN THE DECISION OF THE SUPREME COUR T IN THE CASE OF KALYANJI MAVJI AND CO. [1976] 102 ITR 287, TO THE E FFECT THAT A CASE WHERE INCOME HAD ESCAPED ASSESSMENT DUE TO 'OVERSIG HT, INADVERTENCE OR MISTAKE' OF THE ITO MUST FALL WITHIN S. 34(1)(B) OF THE INDIAN I.T. ACT, 1922, IS STATED TOO WIDELY AND TRAVELS FARTHER THAN THE STATUTE WARRANTS IN SO FAR AS IT CAN BE SAID TO LAY DOWN THAT IF, ON REAPPRAISING THE MATERIAL CONSIDERED BY HIM DURING THE ORIGINAL ASSE SSMENT, THE ITO DISCOVERS THAT HE HAS COMMITTED AN ERROR IN CONSEQU ENCE OF WHICH INCOME HAS ESCAPED ASSESSMENT, IT IS OPEN TO HIM TO REOPEN THE ASSESSMENT. AN ERROR DISCOVERED ON A RECONSIDERATIO N OF THE SAME MATERIAL (AND NO MORE) DOES NOT GIVE HIM THAT POWER . 13. THIS ISSUE, HOWEVER, WAS CONSIDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. P.V.S. BEEDIES PVT. LTD. 237 IT R 13 (SC) WHEREIN IT WAS ITA NO. 1056/MUM/2009 MRS. PUJA BHAGNANI 8 HELD THAT INTERNAL AUDIT PARTY WAS ENTITLED TO POIN T OUT FACTUAL ERROR OR OMISSION AND THE SAME IS PERMISSIBLE UNDER LAW. THE FACTS AND DECISION OF THE HON'BLE SUPREME COURT ARE AS UNDER: - FOR THE ASSESSMENT YEARS 1974-75 AND 1975-76, THE ASSESSMENT OF THE ASSESSEE WAS COMPLETED BY THE INCOME-TAX OFFICER BY GRANTING DEDUCTION UNDER SECTION 80G OF THE INCOME-TAX ACT, 1961, ON A CCOUNT OF DONATION TO A CHARITABLE TRUST. THE INCOME-TAX OFFICER REOPENED THE ASSESSMENT UNDER SECTION 147(B) OF THE ACT ON THE GROUND THAT SUBSEQUENTLY IT WAS POINTED OUT BY THE INTERNAL AUDIT PARTY THAT THE RE COGNITION WHICH HAD BEEN GRANTED TO THE CHARITABLE TRUST HAD EXPIRED ON SEPTEMBER 22, 1972, AND THEREFORE IN THE RELEVANT YEARS OF ACCOUNT THE TRUST WAS NOT A RECOGNISED CHARITABLE TRUST AND THAT THE DONATION M ADE TO THE CHARITABLE TRUST DID NOT QUALIFY FOR DEDUCTION UNDER SECTION 8 0G OF THE ACT, AS A DONATION MADE TO A RECOGNISED CHARITY. THE TRIBUNAL HELD THAT THE INFORMATION GIVEN BY THE INTERNAL AUDIT PARTY COULD NOT BE TREATED AS INFORMATION WITHIN THE MEANING OF SECTION 147(B) OF THE ACT. ON A REFERENCE, THE HIGH COURT AFFIRMED THE ORDER OF THE TRIBUNAL. ON APPEAL TO THE SUPREME COURT: HELD , ALLOWING THE APPEAL OF THE DEPARTMENT, THAT THE IN TERNAL AUDIT PARTY HAD MERELY POINTED OUT A FACT WHICH HAD BEEN OVERLOOKED BY THE INCOME-TAX OFFICER IN THE ASSESSMENT. THE FACT THAT THE RECOGNITION GRANTED TO THE CHARITABLE TRUST HAD EXPIRED ON SEPT EMBER 22, 1972, WAS NOT NOTICED BY THE INCOME-TAX OFFICER. THIS WAS NOT A CASE OF INFORMATION ON A QUESTION OF LAW. THE INTERNAL AUDIT PARTY WAS ENTITLED TO POINT OUT A FACTUAL ERROR OR OMISSION IN THE ASSESSMENT. REOPEN ING OF A CASE ON THE BASIS OF A FACTUAL ERROR POINTED OUT BY THE AUDIT P ARTY WAS PERMISSIBLE UNDER LAW. THEREFORE, THE REOPENING OF THE ASSESSME NT WAS VALID. DECISION OF THE HIGH COURT REVERSED. 14. THE LEARNED CIT(A) RELIED ON THE ABOVE JUDGEMENT TO CONFIRM THE PRESENT ACTION OF THE A.O. AS SEEN FROM THE FACTS O F THE CASE THERE IS NO SCRUTINY ASSESSMENT DONE IN THE ASSESSEES CASE UND ER SECTION 143(3). IN VIEW OF THIS, THE ENTIRE CASE LAW RELIED UPON BY TH E ASSESSEE IS DISTINGUISHABLE AS THEY WERE RENDERED IN THE CONTEX T OF REOPENING OF AN ASSESSMENT AFTER COMPLETING THE SCRUTINY U/S 143(3) . . IN THOSE CASES THE A.O. HAS CONSIDERED THE EVIDENCES FURNISHED BY THE ASSESSEE AND CAME TO AN OPINION AND SUBSEQUENTLY INTERNAL AUDIT PARTYS OBJ ECTION OR INFORMATION WAS NOT CONSIDERED AS A REASON FOR REOPENING. THOSE CAS E LAWS ARE DISTINGUISHABLE. AS ADMITTED BY THE ASSESSEE, IN TH IS CASE THERE WAS NO SCRUTINY ASSESSMENT UNDER SECTION 143(3) AND THE A. O. HAS POWERS TO REOPEN IF HE HAS REASON TO BELIEVE. WE ARE OF THE O PINION THAT THE A.O. HAS ITA NO. 1056/MUM/2009 MRS. PUJA BHAGNANI 9 RECORDED THE REASON WHICH PRIMA FACIE INDICATES THA T HE HAS REASON TO BELIEF THAT INCOME HAS ESCAPED ASSESSMENT BY VIRTUE OF MAK ING WRONG CLAIM OF INTEREST ON LOANS AND INTEREST ON CDS AT 100% DEDUC TION UNDER SECTION 80IA BY INCLUDING THEM IN THE P & L ACCOUNT OF THE MANUF ACTURING UNIT. THEREFORE THERE WAS EXCESS DEDUCTION CLAIMED AND ALLOWED IN A SSESSEES CASE U/S 143(1). THE HON'BLE SUPREME COURT IN THE CASE OF RA JESH JHAVERI 291 ITR 500 HAS HELD THAT AN INTIMATION UNDER SECTION 143(1 ) CANNOT BE CONSIDERED AS ASSESSMENT AND THE A.O. HAS POWERS TO REOPEN THE SAME UNDER SECTION 147, IF OTHER CONDITIONS ARE SATISFIED. WE ARE OF T HE OPINION THAT THE CONDITIONS FOR REOPENING THE ASSESSMENT HAS BEEN SA TISFIED IN THIS CASE AND ACCORDINGLY THE A.O. HAS JURISDICTION TO REOPEN THE ASSESSMENT. IN THE RESULT GROUND NO. 1 IS REJECTED. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH SEPTEMBER 2010. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH SEPTEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XI, MUMBAI 4. THE CIT XI, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.